Outflows from funds eased to £562 million in February, following January’s £3 billion outflow, according to data published by the Investment Association (IA) today. However, investors face into increasing macro-economic uncertainty, as Trump’s tariffs shift from rhetoric to reality.
Key findings for February
- Equities continued to dominate outflows with investors taking out £1.6 billion, primarily from UK equity funds, which experienced a £1.4 billion outflow.
- Mixed Asset funds saw a £409 million inflow, the highest since January 2023 (£493 million) as investors looked to diversify their investments in an uncertain environment.
- The IA Global sector was the highest selling sector with net retail sales of £552 million.
- Modest fixed income inflows have continued with net retail sales of £121 million, after a £188 million inflow in January. Government Bond funds were the top selling fixed income category in February with net inflows of £185 million.
- UK equity funds saw £1.4 billion withdrawn, easing slightly from £1.7 billion in January.
Under the bonnet of equities
Looking under the bonnet of the equity asset class, our figures show inflows of £1.4 billion into equity trackers in February, primarily to North American and Global funds as investors seek low-cost products to access the equity market. This is in spite of US market performance faltering through the first quarter of 2025 – the S&P 500 fell 4.6% in Q1, the worst result since 2022. Actively managed equity funds saw an outflow of just under £3 billion.
By region, North American equities remained the most popular with investors with a net inflow of £496 million, up from £356 million in January. Global equities followed behind with an inflow of £238 million. The high valuations of the Magnificent 7 stocks, which have seen some of the biggest falls in Q1, and the impact of tariffs on US company valuations may mean that investors shift away from making additional allocations to the US over the next quarter.
The threat of tariffs and macroeconomic volatility has however started to impact the Asian equity markets. The Asia Pacific Excluding Japan sector has seen outflows of £348 million since the start of the year. The India sector experienced an outflow of £188 million in February, its worst month since the sector’s 2021 launch. The Indian market valuation has fallen since a September 2024 peak as profit growth for the largest Indian companies has slowed and India has underperformed other Asian markets in 2025.
Miranda Seath, Director, Market Insight & Fund Sectors at the Investment Association, said:
“It’s clear the start of 2025 is a very different landscape for investors from the end of 2024 when markets rose on the back of the US election victory. The spectre of rising inflation is back. The shift from rhetoric to reality on Trump’s tariffs is set to drive inflation. In the UK, household bills are set to increase substantially in April as the energy price cap ends, water bills rise by double digit percentages and council tax increases. Businesses will also look to cover the cost of the April National Insurance Contribution rise.
“Central banks, government and investors will keep a close watch on whether any increase in inflation will be transitory or more persistent. Either way, it is likely to affect interest rates and Central Bank policy in the near term. Rate cuts look set to pause and this will affect equity market performance, while bonds are in a good position if investors pivot to risk off.
“The bigger issue is that uncertainty may lead investors sit on their hands or redeploy capital away from investments to cash savings, which risks poorer financial outcomes over the long-term. Our recent ISA research shows many cash savers, as well as investors, are saving for their retirement, and it is important that they do not miss out on the benefits of long-term investment due to concerns over short-term volatility.”
